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In the December issue, Emmons, an economist and assistant
vice president with the St. Louis Fed, explores how the extended period of
historically elevated rates of extreme mortgage distress and defaults in the
U.S. housing market, better known as “the foreclosure crisis,” is finally
nearing an end.

Although the foreclosure crisis has mostly faded from view
as the U.S. economy continued its slow recovery, a deeper look at mortgage
performance data from the Mortgage Bankers Association suggests that while the
crisis has ended in some states, it is not quite over yet for the nation as a
whole. However, the end is near, perhaps
as soon as the first quarter of 2017. The condition of current mortgage
borrowers considered as a group—nationwide or state by state—is once again
comparable to the period just before the Great Recession and the onset of the
foreclosure crisis in the fourth quarter of 2007.

“However it is defined, the mortgage foreclosure crisis will
go down as one of the worst periods in our nation’s financial history. For the
nation as a whole, the crisis will have lasted almost a decade—about as long as
the Great Depression,” Emmons said. “The conclusion that the foreclosure crisis
has been a long, miserable experience for many is unavoidable. And many
Americans continue to suffer lasting financial, emotional and even physical
pain as a result of their experiences during this time. However, a look at the
data today shows that, at least, the end is in sight.”

Looking deeper at the regional and state levels, Emmons
noted that some states and regions have experienced severe recessions and
housing crises worse than the nation as a whole, while others have suffered
less. This has resulted in a wide range of foreclosure-crisis experiences.

In an analysis of the data that reflects unique characteristics
of particular states, a look at the states that comprise the St. Louis Fed’s
Eighth District (Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri
and Tennessee) shows they all entered their respective foreclosure crises
during 2008-2009, somewhat later than the nation as a whole. By the third
quarter of 2016, six of the seven District states had exited their respective
crises, with Illinois expected to follow by the end of 2016.

“Thus, using each state’s own history, the foreclosure
crises experienced in the Eighth District were somewhat shorter than for the
nation as a whole,” Emmons said. “However, a majority of District states
experienced higher average rates of serious mortgage distress than the nation
as a whole during recent decades, so non-crisis periods are by no means without
financial pain for many District residents.” He noted that for the entire
1979-2016 period, the average serious-delinquency-plus-foreclosure-inventory
rate was 2.80 percent for the U.S. as a whole. While the comparable rates were
lower in Missouri (2.04 percent), Arkansas (2.49 percent) and Kentucky (2.52
percent), they were higher in Tennessee (2.81 percent), Indiana (3.29 percent),
Mississippi (3.42 percent) and Illinois (3.68 percent).

“For most states in the Eighth District, the slightly
shorter duration of their foreclosure crises, when measured against their own
data trends, has been offset by higher average rates of serious mortgage
distress seen even in non-crisis periods,” Emmons said.

“On the Level with Bill Emmons” complements the data and
heat maps that are published each quarter in the Housing Market Conditions
report.This report provides a snapshot
of conditions in the U.S. and in the Federal Reserve's Eighth District states
via:

•color-coded maps that reflect the number of mortgages
considered seriously delinquent,

•color-coded maps that reflect the quarterly percent change
of seriously delinquent mortgages, and